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Dubai non-oil economy improves at fastest rate in 13 months

Output and new order both expand but profit margins and new hires still squeezed

By Jeremy Lawrence

Mon 11 Jun 2018 09:12 AM

Dubai’s non-oil private sector expanded at the fastest rate in 13 months according to the Emirates NBD Dubai Economy Tracker for May.

Output and new orders both expanded at the strongest rates since early 2015, while positive business sentiment was at its highest since the series began in April 2012.

Wholesale and retail led the upturn, with an index reading of 58.3. Travel and tourism followed with 57.3. Construction was the only sector to record softer growth at 54.6, down from 54.9 in April.

The seasonally adjusted tracker index scored 57.6, up from 53.9 in April and the strongest recorded since April 2017. A reading of below 50.0 indicates that the non-oil private sector economy is generally declining; above 50.0, that it is generally expanding.

Commenting on the results, Khatija Haque, head of MENA research at Emirates NBD, said: “The sharp rise in the Dubai Economy Tracker index supports our view that growth in Dubai will be faster this year relative to 2017, but the headline reading masks the squeeze on profit margins which is also evident in the survey data. Firms, particularly in the wholesale and retail sector, cut prices aggressively to boost their output and new orders last month.”

Output increased at the fastest pace in 40 months during May. Business activity has risen continuously on a monthly basis since March 2016. Anecdotal evidence suggests a sharp expansion in new order books.

Firms hired additional staff at only a fractional pace in May, however, with many respondents indicating that employment growth was restricted due to efforts to contain costs.

Positive sentiment reached a series-record high. As well as new project wins, Expo 2020 and forecasts of robust demand underpinned business confidence.

Average cost burdens continued to rise, though the rate of input price inflation eased from April and was moderate overall.

Increased promotional activities alongside softer input cost inflation led firms to reduce their output charges. Notably, reports of greater competition in the construction sector led firms to reduce selling prices at a solid pace, according to anecdotal evidence.